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July 21, 2015

Office of Regulations and Interpretations, 

Employee Benefits Security Administration, 

Attn: Conflict of Interest Rule, Room N–5655, U.S.

Department of Labor, 

200 Constitution Avenue NW., 

Washington, DC 20210

Re: Definition of the Term ‘‘Fiduciary’’; Conflict of Interest Rule—Retirement Investment 

Advice

RIN 1210–AB32

Dear officers, 

On behalf of more than 400,000 members and supporters of Public Citizen, we are pleased to 

provide these comments regarding the Department of Labor’s (DOL) proposed rule regarding the 

standards that agents of the financial sector must oblige when they receive monies from clients 

while providing this investment advice. 

The problem of conflicted advice

Retirement savings dynamics differ substantially from when Congress enacted the Employee 

Retirement Income Security Act (ERISA) in 1974 and when the Department of Labor last crafted 

rules for how the financial sector helps savers manage their nest eggs. Since then, retirees 

depend less on defined benefit plans, where respectable annual payments covered living 

expenses, to defined contribution plans, where the ultimate payments are subject to the success 

of individual investors. That success is heavily dependent on the investment advice provided by 
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agents who earn a living selling various savings products to clients. Where that sales advice is 

compromised by the sales agents conflicted by their own pecuniary interests, the saver can 

suffer. 

Look no further than Jane Austen’s 1811 novel “Sense and Sensibility” to understand the value 

of fiduciary obligation. Here, Mr. and Mrs. Dashwood are entrusted with a fortune to manage for 

their niece. But the trust provides no “stipulations,” leaving it to the Dashwoods to decide how to 

pass on the legacy. Rather than provide for her, however, the couple talks themselves into 

retaining the funds for themselves, and rendering only “neighborly acts” to their ward.1 

The DOL’s proposed rule stems from the understanding that those with access to fortunes should 

be given clearer direction, less they make selfish decisions. 

The stakes are high. Most 401(k) and IRA account balances are modest, and rising life 

expectancy and health care costs put more Americans at risk of outliving their retirement savings

than ever before. Currently, the average defined contribution plan balance is a little more than 

$30,000 in the United States, and2less than half of the current workforce has access to or 

participates in an employment-based retirement plan. The retirement security for far too many of 

today’s working households—especially low and middle income Americans is at serious risk.

Households of color have substantially lower retirement savings than white households, with 74 

percent of Black households and 80 percent of Latino households age 25-64 reporting less than 

$10,000 in retirement savings, compared with 49 percent of white households. Among nearretirees, the per-household average retirement savings balance among households of color 

($30,000) is one-fourth that of white households ($120,000).3 These figures underscore the need 

to make every dollar count; savings should not be compromised by advisors who put their own 

interests first. 

Evidence of conflicted advice harming retirement accounts abounds. Many savings accounts are 

maintained in brokerage houses that need not oblige a fiduciary standard where any advice must 

be made in the best interest of the client. Instead, these are subject to a suitability standard—a 

standard which only prevents clearly reckless ideas, or churning the clients account to generate 

commissions. 

In some cases, this conflicted advice can be obvious and lead to disastrous results. In many 

cases, the conflicted advice can be subtle, with insidious results. For example, often, the best 

option for workers changing jobs is often either to keep the money in the existing plan or transfer 

it into a new employer’s plan. That is because 401(k) plans have lower costs on average than 

IRAs and employers are required by law to manage their plans in the best interest of their plan 

 

1

“Sense and Sensibility,” by Jane Austen, Chapter 1, 1811. . 

2

See Letter from New York Comptroller Thomas DiNapoli, (July 2015), available at: 

http://www.dol.gov/ebsa/pdf/1210-AB32-2-00195.pdf

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See study, letter, Center for Global Policy Solutions, (July 2015), available at: http://www.dol.gov/ebsa/pdf/1210-

AB32-2-00249.pdf
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participants. However, financial firms’ have a strong incentive to capture employer retirement 

assets because it increases their revenues. As a result, these agents may encourage workers to roll 

over their retirement accounts into IRAs, regardless of whether doing so is in the worker’s best

interest. 

Studies show that conflicted advice leads to lower investment returns. Savers receiving 

conflicted advice earn returns of 100 basis points less than those receiving advice from 

fiduciaries. That means, for example, that instead of receiving a 5 percent return, the saver may 

receive a 4 percent return. Over the life of an investment, difference such as these can lead to 

substantially disparate results. The White House estimates that the aggregate annual loss to saves 

is $17 billion each year. 

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The DOL’s proposed rule

The DOL’s proposed rule is intended to clarify the definition of fiduciary investment advice in 

the context of certain savings plans that the government has privileged with tax advantages. 

These include Individual Retirement Accounts and plans government by section 401(k).

Under the proposed definition, a person renders investment advice by (1) providing investment 

recommendations, and (2) either (a) acknowledging the fiduciary nature of the advice, or (b) 

acting pursuant to an understanding with the client that the advice is individualized. When this 

advice is provided for a fee or other compensation the person giving the advice is a fiduciary.

The DOL provides a number of exceptions. For example, the rules provide that offering 

“education” does not make the financial agent a fiduciary. 

The proposed rule allows customers to hold fiduciary advisers accountable through a private 

right of action for breach of contract. The contract can require that individual disputes be handled 

through arbitration but must give clients the right to bring class action lawsuits in court if a group 

of people are harmed.

Generally, we support the rule as proposed. The DOL has drawn clearer lines so that financial 

product purveyors will better understand that they must put their client’s interests ahead of their 

own interests. The rule provides that clients may enforce violations of this standard. 

 

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The Effects of Conflicted Investment Advise on Savers, The White House, (February 2015), available at: 

https://www.whitehouse.gov/sites/default/files/docs/cea_coi_report_final.pdf
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Responding to Industry arguments

The flip side of the financial harm suffered by savers is the profit enjoyed by financial agents. 

Industry advocates do not acknowledge that potential loss of revenue motivates their opposition 

to this proposal. Instead, they mount an altruistic claim that the rule will prevent them from 

serving lower income savers. That’s a curious confession, as it means that lower income savers 

must be forced to pay higher fees than those with higher income. In practice, major financial 

advisors often ignore lower income savers altogether. Many of the larger broker-dealer firms 

mandate minimums for their registered representatives to receive compensation, according to 

Ron Rhoades, and industry consultant and member of the Committee for the Fiduciary standard. 

As a result, these smaller investors are often directed to advisors located in “call centers,” if they 

are served at all. “Hence, to the extent Wall Street firms threaten to “abandon” small investors, it 

must first be realized that many of these brokerage firms have, in essence, already largely 

abandoned smaller investors.”5

This rule threatens commissions for sales to all savers. The insurance sector has been especially 

vocal in opposition to this reform. That’s because these firms sell products, not investment 

advice. And just as a hammer sees everything as a nail, a sales agent for a product can always 

find a reason why that product is the right one for the customer. For example, All State employs

more than 23,000 sales agents. Their job is not to offer investment advice, wherein a client might 

be best served by purchasing a blue chip stock or bond. Their job is to sell Allstate products. 

Their job is certainly not to sell State Farm or Geico products. Allstate’s compensation structure: 

“The compensation structure for Allstate exclusive agencies rewards agencies for . . . achieving 

certain business outcomes such as product profitability, net growth and household penetration. . . 

. The bonus is earned by achieving a targeted percentage of . . . Allstate Financial policies.“

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This rule can help ensure that those who sell any financial product under the mantle of rendering 

impartial investment advice are held to account. 

The financial services industry does not lack for people willing to manage other people’s money. 

There is an abundance of advisors who have self-selected themselves to oblige a fiduciary 

standard. Wealthfront, for example, is an SEC-registered investment advisor. It charges no fees 

for accounts under $10,000, and 0.25 percent of account value for those of more than $10,000. 

Generally, it advises passive index funds. 7

 

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“Why Wall Street’s DOL Killer Threat is Hogwash,” by Ron Rhoades, RIABiz, (June 2015), available at: 

http://www.riabiz.com/a/5026127579971584/why-wall-streets-dol-killer-threat----that-millions-of-ira-investorswill-go-unadvised-under-new-rules----holds-no-water

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All State annual report, 2014), available at: 

http://www.sec.gov/Archives/edgar/data/899051/000104746915000935/a2223004z10-

k.htm#bg79601a_main_toc

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See letter, Wealthfront, (July 2015), available at: http://www.dol.gov/ebsa/pdf/1210-AB32-2-00273.pdf
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In conclusion, we welcome the DOL’s effort to protect retirement savings. This rule can help 

protect savers from conflicts of interest that threaten penury for too many Americans. For 

questions, please contact me at bnaylor@citizen.org, or 202.580.5626

Sincerely, 

Public Citizen